Arbitral Tribunal’s Power to Award Pendente Lite Interest: Supreme Court Clarifies Scope of Contractual Clauses

Introduction

The Supreme Court of India recently revisited the issue of interest in arbitration in Oil and Natural Gas Corporation Ltd. v. G&T Beckfield Drilling Services Pvt. Ltd.[1] (decided on September 2, 2025). The Court held that an arbitral tribunal has the power to grant pendente lite interest unless the contract expressly or by necessary implication bars such a grant. It further clarified that a clause barring interest on delayed payments does not automatically prevent the tribunal from awarding interest during the pendency of arbitration. This judgment provides much-needed clarity on the interpretation of contractual clauses dealing with interest and reinforces the principle that limitations on arbitral powers must be explicit and comprehensive.

Facts

The dispute stemmed from a contract between ONGC and G&T Beckfield Drilling Services Pvt. Ltd. On November 21, 2004, the arbitral tribunal directed ONGC to pay USD 6,56,272.34 for unpaid invoices, demobilisation charges, wrongful deductions, and loss of tools, along with pendente lite interest at 12% from December 12, 1998, plus post-award interest and costs. ONGC challenged the award under Section 34, citing Clause 18.1, and the District Judge set it aside. The Gauhati High Court reversed this, upholding the award. ONGC appealed to the Supreme Court, which confined the issue to whether Clause 18.1 barred pendente lite interest.

Issue

The question before the Court was whether Clause 18.1 of the contract, which stated that no interest would be payable on delayed payments or disputed claims, barred the arbitral tribunal from awarding pendente lite interest under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996.

Arguments

ONGC submitted that, according to Section 31(7)(a) of the Act, it is specifically stated that a party has to agree to an arbitrator’s decision to grant interest for the pre-award period, which comprises both pre-reference and pendente lite interest. Clause 18.1 explicitly negated the payment of interest related to the delay or dispute of claims; hence, the arbitrator went beyond his/her limits by awarding pendente lite interest. ONGC further stated that such an award was inconsistent with the terms of the contract and, therefore, should be set aside under Section 34.

The respondent replied that the purpose of Clause 18.1 was to prohibit the payment of OCNG interest on the delayed part of the contract, whereas it did not exclude the statutory power of an arbitral tribunal to grant pendente lite interest. The tribunal had actually complied with the clause by refraining from awarding pre-reference interest. The issuance of pendente lite interest, the respondent argued, was warranted since the money had been withheld unjustly and the clause did not specifically nor logically revoke the discretion of the tribunal. The respondent contended that equity required the time value of the money to be paid for the period of the protracted arbitration proceedings.

Judgment

The Supreme Court turned down ONGC’s application for leave against the order and confirmed the decision to grant the award of pendente lite interest. It was remarked by the Court that Section 31(7) of the Act provides for three different stages of interest, namely, pre-reference, pendente lite, and post-award. Pre-award and pendente lite interest, as per the conditions of the contract, are allowable, whereas in the case of post-award interest, it is governed by law, so the parties cannot exclude it through their agreement. The Court went on to say that the arbitral tribunal had made the right decision in denying pre-reference interest in view of Clause 18.1 but at the same time, it was absolutely legal for them to grant pendente lite interest.

By interpreting Clause 18.1, the Court found that such clause merely suggested that ONGC would not pay interest in the case of delayed or disputed claims. As opposed to the more detailed clauses in such previous cases as Sayeed Ahmed & Co. and THDC First, the present clause did not contain any express provisions that would have allowed the parties to exclude or otherwise terminate all interest, including the present one, by any means. The Court said that it was only very clear and all-embracing contractual wording which could have completely excluded the tribunal’s discretion to grant pendente lite interest and that, in the absence of such a provision, even Clause 18.1 would not have been sufficient to interpret it as a prohibition.

The Court also considered that the interest rate on the award, that is 12% per annum, was a fair one, especially since it was below the statutory default rate of 18% under Section 31(7)(b) at the relevant time. It thereby came to the conclusion that the arbitral tribunal had performed well within its sphere of competencies and that there was no mistake requiring any kind of intervention. As a result, the appeal was declined.

Analysis

The lower court decision marks a very important step in clarifying the extent of arbitral discretion under section 31(7). It reaffirms the basic notion that party autonomy in arbitration is respected, but any restrictions on the powers of the tribunal must be very clear. If the contract is silent or unclear, the tribunal has the freedom of choice to grant interest on the matter under the supervision of the court in the interests of justice. The Court’s position is in line with the decision of the Constitution Bench in Irrigation Department v. G.C. Roy, which determined that arbitrators have the discretion to award pendente lite interest unless the contract specifically prohibits it.

Apart from that, it is also consistent with the subsequent decisions of the Court, such as the Ambica Construction and Reliance Cellulose v. ONGC, in which the Court recognized the difference between the cases of narrowly drawn clauses in which only interest on delayed payments was prohibited and of cautiously drafted clauses where the complete prohibition of the interest was decided. On the contrary, the examples of Sayeed Ahmed & Co. and THDC First have been contrasted with those cases as the courts found that contractual provisions that were characterized by very categorical and harsh words and hence, they barred all kinds of interest without exception “under any circumstances” were used in the given clauses.

Additionally, the court’s emphasis that post-award interest under Section 31(7)(b) is a compulsory payment, which is beyond the powers of the parties, was also very important. This, on the one hand, facilitates the implementation of decisions issued by the arbitral tribunal and, on the other, discourages that payment will be made at a later stage. The difference indicated between pre-award and post-award interest is in line with the concept of contractual freedom while at the same time being in a position to ensure the enforceability of arbitral awards.

The court highlighted the idea of proportionality as the mainstay in deciding whether to grant interest. By observing that the rate of 12% was fair and even lower than the statutory default, the Court was speaking to the necessity of arbitral discretion being exercised with a degree of caution. Indeed, such an argument would be open to challenge if the rate of interest were excessively high or of a punitive character. On the other hand, if the rates were reasonable and in line with the statutory guidance, that would allow them to withstand the judicial scrutiny.

Conclusion

The Supreme Court’s decision in ONGC Ltd. v. G&T Beckfield Drilling Services Pvt. Ltd. affirms that arbitral tribunals may award pendente lite interest unless there is a clear contractual prohibition. Clause 18.1, limited to delayed payments and disputed claims, did not bar such interest, and the tribunal’s award was upheld.

[1] CIVIL APPEAL NO. 11324 OF 2025.